Soundings

Steven Malanga

Silicon Alley: Still Flourishing

New York's tech district is far broader than slumping e-tailers

Winter 2001

The dot.com stock meltdown that began last spring and has yet to run its course has cost investors billions and led many formerly high-flying Internet firms to lay off workers. But New York's digital economy is still flourishing. In the third quarter of 2000, venture capitalists pumped an impressive $1.07 billion into Silicon Alley, only slightly off the $1.09 billion they invested in the second quarter.

New York's digital economy is doing so well because it's far broader in scope than the slumping e-tailers that tend to get most of the media attention. Silicon Alley boasts scores of smart companies working to improve the Internet's infrastructure by allowing wireless access to it and improving the software on which it runs. Other successful Silicon Alley firms create tools essential to increasing the online productivity of business users. These kinds of companies continue to find financing and grow strongly.

The biggest single chunk of financing in New York last summer ($122 million), for example, went to Broadview Networks, a Manhattan-based independent telecom company that provides Internet access and builds networks and hosts websites for small and midsize businesses. It'll use the money to expand into new East Coast markets. Next biggest: Sphera Optical Networks, a Manhattan-based builder and operator of high-speed networks in big cities that received $70 million to open new markets.

Another sign of economic health: the city's tech community gobbled up 863,000 square feet of Manhattan office space over the summer. Though that's slightly off the huge numbers put up during the first six months of 2000, it still placed the industry a solid secondonly Wall Street beat it outas the biggest acquirer of new office space. Two years ago, tech companies barely made the top ten.

True, the city's new economy is unlikely to keep up its current torrid growth tempo. From 1995 through 1999, Silicon Alley mushroomed from 27,000 to nearly 140,000 jobs. Billions of dollars in stock-market financing and venture-capital investments fueled much of the job creation. Now, with IPO money drying up-not just in New York but everywhere-firms will trim expansion plans. Wall Street firms have spent a staggering $57 billion on technology since 1997, driving growth also. But with profits stalling across corporate America, and especially on Wall Street, firms probably will hold the line, or even reduce tech spending, at least for a while.

But though the unprecedented growth rates of the last few years will in time give way to a more predictable business cycle, the new data show that anything like dot.com depression isn't on the horizon.